IEEJ © October 2018. All rights reserved.

Press release

15 October 2018

IEEJ Outlook 2019
Energy transition and a thorny path for the 3E challenges

Energy,Environmentand Economy

The “IEEJ Outlook 2019” analyses the global energy supply and demand through 2050, as well as thechallenges of a global energy transition from the 3E-perspective. All future increases in global energy
demand will come from non-OECD countries. The gap between energy supply and demand in Asia will
widen, increasing its dependence on imports. The cumulative investment required for energy supply is$67 trillion, or 1.5% of GDP. Fuel and electricity supply will each account for half of the total investments.
The world’s demand for electricity will double, and economic and social dependence on electricity will
increase. In addition to oil, which has been at the core of discussions on energy security, it is desirable tosystematically develop the ability to respond to power supply disruptions. Asia’s surging electricity demand
will be met by rapidly growing renewable energy and natural gas, as well as with cheap and abundant coal,
which will remain a major power source. A total ban on the construction of coal-fired power plants would
reduce CO2 emissions, but it is necessary to pay attention to trade-offs with energy security, electricity costs,etc.

An overview of the global energy market and climate change responses through 2050
The gap between energy supply and demand in Asia will widen, increasing its dependence on imports. The
additional investments required for the Advanced Technologies Scenario is $8 trillion. Asia can recoverenough of its investments by reducing its fuel import spending, but the Middle East will see a sharp drop in
its exports.
⚫

All future increases in global energy demand will come from non-OECD countries. OECD countries, on
the other hand, continue to decouple energy consumption and economic growth. Under the “Reference
Scenario,” the global demand for electricity will double and the economic and social dependence onelectricity will increase. While the rapid and steady spread of renewable energy and natural gas isexpected to power the rapidly growing demand for electricity in Asia, cheap and abundant coal willremain a major power source.

⚫

Strong demand for oil and natural gas in Asia far exceeds the growth in production in the region,
widening the supply-demand gap. Imports will increase significantly, with about 80% of the energy
traded internationally going to Asia. In particular, the oil import spending will increase rapidly, and thetotal spent on energy imports from outside the region will increase from 1.6% to 3.0% of GDP.

⚫

Under the “Advanced Technologies Scenario,” in which energy and environmental policies arestrengthened, a cumulative total of 35 Gtoe of energy can be saved compared to the Reference Scenario.
Oil demand will peak in 2030 before declining thereafter. CO2 emissions will peak in the mid-2020s anddecrease by 11% from 2016 levels by 2050. However, in order to realise an emission path that will keep
the temperature rise at 2°C, further reduction policies and the development of innovative technologies
are necessary. From a long-term perspective, the wisdom and ingenuity to minimise the total cost ofclimate change are essential.

⚫

Under the Reference Scenario, the cumulative investment required for energy supply is $67 trillion, or
1.5% of GDP. Fuel and electricity supply each account for half of the total investments. Under theAdvanced Technologies Scenario, an additional investment of $8 trillion is required, including
investment in energy efficiency. In Asia, it is possible to recover enough of it through reduced importspending. On the other hand, exports from the Middle East and others will shrink sharply. The ratio ofelectricity-related investment, including power saving (energy efficiency), to the total energy investment- i -IEEJ © October 2018. All rights reserved.

will stand at 52% in the Reference Scenario and 61% in the Advanced Technologies Scenario,
underscoring the importance of investment in the power sector.

Need to restructure the oil and electricity supply security system
Up until now, oil has been at the core of the discussions on energy security. It is important to continue
strengthening the security of oil but it is also desirable to develop a security system to cope with electricity
supply disruptions, as demand for electricity increases.
⚫

The risk of oil supply disruption remains present. Depending on developments in Iran, which isattracting attention, oil prices may rise sharply. The disruption of large-scale oil supplies could beparticularly severe. If Middle East oil production falls by 10 Mb/d and other oil-producing countries failto increase production to compensate, the world economy would shrink by 9%, particularly in Asia.

⚫

Power outage, which is the supply disruption of electricity, has large regional difference. In some
low-income countries, power outages are more than 10% a year. In developed countries, powertransmission and distribution automation has shortened power outage time, but new risks such as (1)increasing dependence on specific energy sources, (2) being a duck curve of net load due to increased
solar PV power generation, (3) plant shutdown due to economic efficiency, and (4) cyber attack are
attracting attention.

⚫

In terms of measures to deal with supply disruptions, oil and electricity have many common points suchas diversification, redundancy, and diversification, but they are different from each other in terms ofensuring the ability to deal with supply disruptions. In the case of oil, a certain degree of institutionalsecurity to cope with supply disruptions is provided through stockpiling systems and the international
cooperation by IEA member countries. It is also important to support economic stabilisation inoil-producing countries in the future.

⚫

In the case of electricity, there is no guarantee of reserve power generation capacity in preparation forpower outages. It is desirable to establish a security system for electricity, including the use of newtechnologies such as artificial intelligence and Internet of things.

Consider the impact of anti-coal-fired power generation
If the construction of new coal-fired power plants is banned after 2020, CO2 emissions could be reduced byup to 7 Gt in 2050. However, it is necessary to pay attention to the trade-off relationship with energy security,
the electricity cost issue, etc.
⚫

In the Reference Scenario, more than the half of the increases in CO2 emission up to 2050 is directemissions from the power generation sector. Movements such as “ESG investment” and “Divestment”,
which suggest refraining from investing in or withdrawing from coal-fired power plants, are spreading.

⚫

If new coal-fired power plants are totally banned after 2020, coal consumption could be reduced by
2.3 Gtce in 2050, and CO2 emissions could be reduced by 3 Gt in the case of substitution by natural
gas-fired power generation and 7 Gt in the case of substitution by solar PV / wind power generation.

⚫

Reducing coal consumption is inextricably linked to the explosive increase in alternative energy
consumption. The enormous additional demand presents us with major security challenges such as
stable supply of natural gas and electricity, economic efficiency, etc. The impact of this energy transitionis particularly pronounced in Asia, which is heavily dependent on coal, but the rise in natural gas prices
extends beyond Asia, where increases in natural gas demand are less.

⚫

Countries that can abolish coal-fired power generation should steadily promote it. On the other hand, incountries where it is difficult to abolish coal or have better alternatives to CO2 reduction must consider
their priorities. Even in such countries, however, efforts must be made to replace low-efficiency
coal-fired power plants with highly efficient ones, and at the same time, to develop the environment toreduce coal-fired power generation. To this end, developed countries must be prepared to provide
financial and technical assistance.
Contact: report@tky.ieej.or.jp- ii -